PE investors agree to Lilliput’s fund raising

Tuesday, 06 December 2011

Feud between Lilliput Kidswear and its investors Bain Capital
and TPG has ended on a positive note with both the investors agreeing to Lilliput’s fund raising proposal. The company has now informed its bankers that Grant Thornton and Avendus Capital will assist in raising funds through a fresh issue of shares. According to industry insiders, the 55 per cent stake held by promoter Sanjeev Narula, and the rest held by the two PE investors is likely to come down by roughly by 10 per cent each.

Earlier the kidswear company had plans to raise funds through capital market, but now it has to do it through private placement to carry out its expansion plans, reduce debt and meet its monthly Rs 30 crores fixed operational cost.

The issue became public when Lilliput filed a case against the investors in Delhi High Court after Bain and TPG withdrew their support to the company’s proposal to issue Rs 850 crores initial public offering through the capital market, accusing Narula of fudging company’s financial accounts. The funds raised through IPO would have funded Lilliput’s expansion plans and cut debt, which now stands at around Rs 550 crores.

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Followed by the feud, even banks had refused to release the sanctioned loan amount of Rs 200 crores to Lilliput, putting them further under pressure and forcing the company to offer continuous discount of up to 30 per cent at all its stores. On September 28, after disapproving Lilliput’s financial statement of 2010-11 by a majority vote and later the PE nominees, the four independent directors and external auditing firm SR Batliboi resigned. And, Narula moved the Delhi High Court alleging that the two investors were trying to stall the company’s proposed public offer and seize majority control. The PE investors, in turn, appealed for forensic investigation of the company’s accounts.

However, the Delhi High Court, in an order passed on November 2, restrained Bain Capital and TPG from selling their shares in Lilliput without first offering them to Narula. In another order passed on November 4, the court turned down the demand of the two investors for a forensic investigation and instead appointed S S Kothari Mehta and Co as an independent auditor to probe the company’s books.

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